Open season

October 2008

Brett Haggard

Altech’s win against ICASA and the DoC has for all intents and purposes opened the South African telecoms landscape somewhat. Will it radically change anything however?

The South African telecoms deregulation process finally got into its stride last month, when the Pretoria High Court Judge Norman Davis ruled in favour of Altech in its dispute with Independent Communications Authority of SA (ICASA) and the Department of Communications around its right to self-provision infrastructure as a VANs licensee.

In a nutshell, Altech took communications minister, Ivy Matsepe-Casaburri’s 2005 'determination of dates' for the further liberalisation of the sector, as an indication that VANs could begin self-providing their own infrastructure.

The minister and ICASA on the other hand argued that this would lead to an 'absurd result'.

And in many ways it has – it has greatly devalued efforts by players such as Neotel, who spent a great deal on attaining a licence to compete with Telkom.

Only three years after Neotel was awarded its licence, VANs licensees are on a similar footing as them.

Open up

The ruling in Altech’s favour is a landmark in that it allows the hundreds of Internet service providers and other VANs licensees to build their own networks independently of licensed infrastructure operators such as Telkom, Neotel and the mobile operators.

Largely, the ruling is more of a storm in a teacup than anything else however.

While industry commentators have speculated that the ruling will result in new players entering the telecoms market with the right to self-provision, the reality is that very few, if any have the appetite or capital to compete with Telkom, Neotel or any of the mobile operators on a national basis.

That is not to say that there will not be competition however. It is just unlikely that more than a couple of players will look at competing with the big dogs nationally.

Unique scenario

Will Hahn, principal analyst at Gartner says that South Africa’s telecoms landscape is difficult to call and because there is no blueprint the country can follow.

“South Africa can look in vain for a model to follow from another country, but unfortunately the country is in such a unique position that it will have to forge its own way,” he says.

While he agrees that the ruling is a good thing, at the same time he says it is not likely to create a scenario where dozens of new players will enter the market and begin digging up roads to lay their own infrastructure.

Telkom and the mobile providers are well established and Neotel is some way into its infrastructure rollout.

Keeping the big boys in check

That said however, Hahn adds that it is important for countries to create viable and low barriers to entry for the telecoms market, so that the larger players have a sense that if they are not doing the best job, competitors are waiting in the wings.

“The big boys have to know that they are not allowed to inflate prices or confuse issues through bundling and the likes. They need to know that there may be new entrants waiting in the wings, capable of coming into the market and forcing prices back down,” he says.

More than anything, Hahn says the ruling is a good indicator that the local telecoms regime is maturing.

“I do believe however, that it is time for the regulators to get together and decide on, be it in private or otherwise, what the landscape will look like. Such an exercise with instill a greater sense of confidence in the South African telecoms market,” he says.

There have been a number of moves from international players to merge with South African companies and Hahn says, the majority of those moves have not worked out.

“When one does not know where the regulator is coming from next, it is an issue,” he says.

Interesting opportunities

What the ruling does allow for, says Hahn, is interesting models to begin developing.

“Take for example municipalities' ability to lay down infrastructure and become telecoms providers in their own right,” he says.

“The ruling opens up an opportunity for these municipalities to lay down the infrastructure and either hand it over, or lease it to a licensee with strong appetite and the ability to become a telco.

“In fact, I would not recommend that the municipalities try to run these networks themselves. They would be far better served by a player that has experience in this game,” he says.

Certainly Hahn says it is plausible for VANs to begin dipping their toes in the water in some places, like for example in metropolitan areas where large potential user bases exist. The same holds true for underserviced areas.

He says it is unlikely for the ruling to result in a proliferation of players competing with the big telcos on a national scale.

Back to ICASA

ICASA has said it will not appeal the ruling and that it will continue with the licence conversion process.

The DoC has however requested leave to appeal the decision, which puts everything on hold until a final ruling has been made.

If the appeal is successful it is back to the drawing board.

If on the other hand, the court finds in favour of the original ruling, eyes will turn back to ICASA and the licensing of wireless spectrum, since this would be the most cost-effective way for new players to come into the market.

Conditions on that front look pretty onerous at present, so it is unclear whether even that will provide an avenue for VANs to begin viably providing telecoms services.

One thing is for sure however. The local telecoms space will be interesting for some time to come.

Opinion

The ruling is a good thing, since it will provide some interesting niche opportunities and go some way towards keeping the larger players in line. It is unlikely that it is going to change the telecoms space drastically. Nothing is cast in stone however. We cannot rule an investment from an international telecoms giant out completely however. A more open market does mean increased competition and that is always good for the consumer.

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